FDIC Federal Register Citations

Robert E. Feldman, Executive Secretary
Attention: Comments
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington DC 20429

Mr. Feldman,

I am writing to support the federal bank regulatory agencies'
(Agencies) proposal to enlarge the number of banks and saving
associations that will be examined under the small institution Community
Reinvestment Act (CRA) examination. The Agencies propose to increase the
asset threshold from $250 million to $500 million and to eliminate any
consideration of whether the small institution is owned by a holding
company. This proposal is clearly a major step towards an appropriate
implementation of the Community Reinvestment Act and should greatly
reduce regulatory burden on those institutions newly made eligible for
the small institution examination, and I strongly support both of them.

I work for a medium size bank, the sole subsidiary of a bank holding
company, with about $360 million in assets and 13 offices located in
Southwestern Utah. For CRA purposes, we became a large bank on January
1, 2003 and just recently completed our first large bank CRA exam. With
the completion of the exam fresh on my mind, I just want to comment on
the burden of the exam process for a large bank compared to that of a
small bank. The large bank exam, I would estimate, took about 10 times
longer than the small bank exam would have taken, with substantially the
same result.

As a community bank, we must be aware of the financial needs of our
communities that we serve. In fact, three of our thirteen offices are
located in communities that have no other financial institutions. We
believe we are providing the service that is needed in these communities
as well as the other communities where we have offices. We don't need
a regulation to dictate how we need to service these communities.

Ironically, community activists seem to ignore the costs and burdens
associated with increased regulation. And yet, they object to bank
mergers that remove the local bank from the community. This is
contradictory. If community groups want to keep the local banks in the
community where they have better access to decision-makers, they must
recognize that regulatory burdens are strangling smaller institutions
and forcing them to consider selling to larger institutions that can
better manage the burdens.

Increasing the size of banks eligible for the small-bank streamlined
CRA examination does not relieve banks from CRA responsibilities. The
survival of many community banks is closely intertwined with the success
and viability of their communities. Even before becoming a Large Bank
for CRA purposes we participated in Low Income Housing projects that
benefited our community as well as providing other community development
opportunities.

In my opinion, the most futile part of the Large Bank Examination was
the examination and verification of our Investments for the investment
test. Under the streamline exam, this information would not have been
taken into account, unless requested by the bank. Being a medium size
bank serving a rural area, we find it difficult to find truly "qualified
investments" for CRA purposes. However, I would like to point out that
we have many Municipal securities issued by the communities where we
have offices and serve. Again this comes from the underlying fact of
the community bank being intertwined with the community. Placing the
investment requirement on a community bank like us to purchase
" qualified investments" may require us to divert some of the funds from
our local municipal securities that may not "qualify" for CRA credit.
Also of mention, is that the "qualified investments" that we would be
purchasing would be issued from large metropolitan areas that are
outside of our assessment area, and again reduce our ability to truly
serve our communities.

In reviewing guidance for the Investment Test, I would encourage the
regulatory agencies to consider a bank's overall investment portfolio,
much in the same way the overall loan portfolio is measured. The
evaluation for the lending test considers the characteristics of loans
within the assessment area including community development lending. The
investment test should be measured much the same way. I believe the
agencies should include most investments in either a General Obligation
Municipal Bond or Municipal Revenue Bond if the government entity is
within the bank's assessment area, and also include other investments
that specifically fund community development activities that may be
outside the assessment area.

Using our bank as an example, we have a large number of general
obligation municipal bonds and municipal revenue bonds which have been
issued by entities within our assessment area. However, recent guidance
from the FDIC in the Community Development Investment Guide states that
these types of bonds "generally do not meet the requirements of a
CRA-qualified investment . . . [since they] typically benefit the
greater community and are not targeted to low- and moderate-income
neighborhoods" (emphasis added). In a rural area where we are located
it is difficult, if not impossible, to have the governing body issue
bonds that are targeted to low- and moderate-income neighborhoods. I
strongly believe we are participating in investments in our communities
that benefit our communities, but we are generally unable to count those
investments because they have not been targeted for qualified CRA
purposes.

Finally, I would encourage the regulatory agencies to consider
increasing the threshold to $1 billion. I encourage this since
increasing the threshold to $500 million will only be effective for us
for one exam cycle. Since we were just examined as a large bank, we
will be examined in about two years. If the proposal passes and we
become a small bank again until we reach $500 million, that exam in two
years will be as a small bank. I anticipate our bank continuing to grow
such that in 5 years we will be over the $500 million threshold and thus
making us a large bank again just in time for the subsequent exam to
begin. However, I believe that we will continue to operate as a
community bank.

In conclusion, I strongly support increasing the asset-size of banks
eligible for the small bank streamlined CRA examination. For true
regulatory reduction, I recommend the threshold be raised to $1 billion.
I also recommend the agencies consider allowing as qualified CRA
investments, municipal securities issued by government entities within
the bank's assessment area. While community banks, of course, still
will be examined under CRA for their record of helping to meet the
credit needs of their communities, these changes will eliminate some of
the most problematic and burdensome elements of the current CRA
regulation from community banks that are drowning in regulatory
red-tape. Please feel free to contact me to discuss any aspects of this
proposal.

Thank you,

David Eberhard
State Bank of Southern Utah